Shu-Yi Oei (Duke University School of Law) has posted Disentangling Power and Preferences in Tax Treaty Negotiations: Analyzing Tax Treaties between Developing and OECD Countries Using Multilevel Modeling on SSRN. Here is the abstract:
Tax treaties between developing and developed countries are often criticized as unfavorable to developing countries. A key debate in the literature concerns whether this is due to power imbalances, such that the preferences of the developed country dominate, or whether developing countries rationally prefer seemingly unfavorable tax treaties, for example, to attract foreign investment. Using a cross-nested hierarchical regression model on data from the International Centre for Tax and Development Tax Treaties Explorer dataset covering tax treaties between 1950 and 2019 (and other data sources), this paper examines the evidence supporting both these explanations, investigating what factors predict the relative favorability of tax treaties between developing and developed countries. This paper finds partial support for both the power-based and the rational-contracting arguments. Developed country power and preferences matter: Developed countries with larger populations and those that place lower priority on themselves being an attractive tax destination negotiated treaties less favorable to developing countries. Developing country preferences and capacity to effectuate them also mattered somewhat, with treaty negotiation experience and presence of bilateral investment treaties showing significant, albeit complicated, relationships to tax treaty outcomes. This paper finds that contextual factors such as geographical location of the developing country also matter.
